If a Stock Pays Dividends at the End of Each

question 52

Multiple Choice

If a stock pays dividends at the end of each quarter,with realized returns of R₁,R₂,R₃,and R₄ each quarter,then the annual realized return is calculated as:

• A) Rannual = (1 + R₁)(1 + R₂)(1 + R₃)(1 + R₄) - 1
• B) Rannual = R₁ + R₂ + R₃ + R₄
• C) Rannual = (1 + R₁)(1 + R₂)(1 + R₃)(1 + R₄)
• D) Rannual =
• E)Rannual = (1 + R₁)(1 + R₂)(1 + R₃)(1 + R₄) + 1

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Definitions:

Expected Utility

A theory in economics that predicts the choices individuals will make by considering the risks and benefits of their options and selecting the one which offers the most utility.

Utility Function

A mathematical representation that describes how a consumer ranks different bundles of goods based on the level of satisfaction or utility they provide.

Risk Premium

The extra return or profit that an investor requires to hold riskier assets, over and above that of a risk-free asset.

Utility Function

A mathematical representation that shows the relationship between an individual’s consumption bundle and their level of satisfaction or utility.